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Half of Metroburg's operating budget comes from a payroll tax of 2 per

1 2 3

DmitryFarberMPrep

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Updated on: 28 Sep 2024, 23:04

Originally posted by DmitryFarberMPrep on 28 Sep 2024, 22:54.
Last edited by DmitryFarberMPrep on 28 Sep 2024, 23:04, edited 1 time in total.

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Dbrunik

I wouldn't recommend judging an older problem by more recent developments--it's not live on the test. But in any case, since the argument talks about people being "employed at" a particular location, we can figure that they are actually going to a physical workplace. Also, since E is just about a change in proportion, we don't have to worry about the number of workers. The answer isn't quantified at all, so any change in number will create a change in proportion.

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30 Sep 2024, 01:30

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All math based:

Facts given-
1% people employed in company
contribute to 50% operating budget
by 2% tax on salary

If current total employed in city = 100
city population = 1000
1% employed in firm = 1
contributes to 50% operating budget via 2% salary

if this 1 leaves,

A. not 1% revenue reduction, 50% reduction
B. unemployment rate decreased 100/1000 = 10% to 99/999 =8~9%
C. we don't know
D. similar to A
E. If out of 100 people employed in public = 60, private = 40, now it's 60 : 39, proportion of public increased

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14 Apr 2025, 17:59

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For option E, What if before the departure, there were zero public employees. Then public sector participation would have been zero. And after the departure of the pvt company, the proportion of public sector employment will still be zero. So, No change.

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19 Apr 2025, 08:10

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desertEagle

We attempted to address this concern in this post earlier in the thread.

Also, we're looking for an answer choice that can most properly be concluded, not something that can be 100% proven. Similarly, "will tend to increase... " isn't quite the same as "will definitely increase...".

(E) is a reasonable conclusion based on the information given, and it's certainly the best available option.

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Soo according to ChatGPT, the answer was D (I got the same answer too). Lol I'm so confused. It's a great question no doubt. Not sure what the answer is. GPTs response to your point was this:

You're asking whether this explanation is correct for eliminating Options A and D in the Metroburg question. Let's break it down and assess the logic.
[hr]
🧠 First: Recap the relevant part of the question
We're told:

50% of the city’s operating budget comes from a 2% payroll tax on salaries paid to people working in the city.
A large company that employs 1% of all workers in Metroburg is moving outside the city.
We must find what can properly be concluded.

[hr]
✅ Your Explanation: Evaluated Point-by-Point
🔹 Claim 1: “We don’t know how much revenue the FS company contributes; salaries may be above or below average.”
Assessment: Partially true — but not the reason why D is wrong.

You're absolutely right that the actual dollar amount lost in payroll tax revenue depends on total salary paid, not just headcount.
BUT Option D doesn't claim a specific dollar value — it just says "revenue will decline by 1% if no new jobs replace those lost."
That statement is based on the given fact that the company employs 1% of the workforce. So if we assume average salaries (which we must unless told otherwise), it's fair to infer a 1% drop in payroll tax revenue.
So D is valid as a conclusion using only the information given and a reasonable assumption of proportionality.

🟩 So this reasoning would be valid if Option D referred to specific tax dollars or made assumptions about salary levels — but it doesn’t.
[hr]
🔹 Claim 2: “A and D are essentially saying the same thing, so either both are right or both are wrong.”
Assessment: Not quite.
Let’s look at the actual wording of A vs D:

Option A:
"Unless other employers add a substantial number of jobs in Metroburg, the company's relocation is likely to result in a 1 percent reduction in the revenue for the city's operating budget."
Option D:
"Revenue from the payroll tax will decline by 1 percent if there is no increase in jobs within the city to compensate, fully or partially, for the company's departure."

🔍 Key Differences:

A talks about a 1% reduction in the overall operating budget.
- Payroll tax is only 50% of the budget → so losing 1% of that means only a 0.5% budget hit, not 1%.
- ❌ So A overstates the impact on the budget — it’s not logically valid.
D talks only about a 1% reduction in payroll tax revenue, not the whole budget.
- Since 1% of employees leave, it’s reasonable to infer 1% drop in that revenue stream.
- ✅ So D is correct.

🟥 So they are not saying the same thing. A talks about the whole budget, D talks about the payroll tax only.
[hr]
✅ Final Verdict on Your Explanation:

Part of Explanation	Verdict	Reason
We don’t know the salary levels, so can’t assume the impact	❌	GMAT lets you assume average unless told otherwise; D uses proportion (not absolute)
A and D are essentially the same	❌	A overstates (operating budget), D stays within scope (payroll tax)
Therefore both must be wrong	❌	D is correctly inferred; A is not

[hr]

:dontknow:

Quote:

"Option A is incorrect because it assumes a 1% drop in the city’s operating budget, but only half the budget comes from the payroll tax. So losing 1% of the tax base would cause less than 1% drop overall, making A an overstatement.
Option D, however, refers only to the payroll tax itself and correctly states that if no jobs are added, payroll tax revenue will decline by 1% — which follows directly from the information given about the company employing 1% of the workforce. So D is correct and A is not."

Kritisood

generis

Half of Metroburg's operating budget comes from a payroll tax of 2 percent on salaries paid to people who work in the city. Recently a financial services company, one of Metroburg's largest private-sector employers, announced that it will be relocating just outside the city. All the company's employees, amounting to 1 percent of all people now employed in Metroburg, will be employed at the new location.

From the information given, which of the following can most properly be concluded?

A) Unless other employers add a substantial number of jobs in Metroburg, the company's relocation is likely to result in a 1 percent reduction in the revenue for the city's operating budget.

B) Although the company's relocation will have a negative effect on the city's tax revenue, the company's departure will not lead to any increase in the unemployment rate among city residents.

C) One of the benefits that the company will realize from its relocation is a reduction in the taxes paid by itself and its employees.

D) Revenue from the payroll tax will decline by 1 percent if there is no increase in jobs within the city to compensate, fully or partially, for the company's departure.

E) The company's relocation will tend to increase the proportion of jobs in Metroburg that are in the public sector, unless it results in a contraction of the public-sector payroll.

CR08540.02

The reason why A and D are incorrect is that we are not told how much revenue is actually contributed by this financial services (FS) private sector giant. The salaries that it pays to its employees could be well above the average of Metroburgs salary or well below as well. In this case, we cannot conclude whether A or D is for sure correct. Also, another reason should come to mind before choosing A or D is that what is so different bw either? both are stating more/less the same thing. Hence, either both will be correct (which isn't poss) or both will be incorrect.

The reason why E is correct and so tricky to spot (i also fell for the trap btw) is that the private sector FS co comprises of 1% of the employees. if they relocate then all things being equal the PROPORTION of the employees in the public sector domain will rise in comparison to before. BUT not if this relocation leads to a decrease in the salaries of the public sector employees.

AHH, subtle but a very good question!!

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[1]

30 Jun 2025, 08:52

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Addu.23

Soo according to ChatGPT, the answer was D (I got the same answer too). Lol I'm so confused. It's a great question no doubt. Not sure what the answer is.

My favorite part of ChatGPT's explanation, with the juiciest part highlighted in blue:

Quote:

✅ Final Verdict on Your Explanation:

Part of Explanation	Verdict	Reason
We don’t know the salary levels, so can’t assume the impact	❌	GMAT lets you assume average unless told otherwise; D uses proportion (not absolute)
A and D are essentially the same	❌	A overstates (operating budget), D stays within scope (payroll tax)
Therefore both must be wrong	❌	D is correctly inferred; A is not

[hr]

:dontknow:

"GMAT lets you assume average unless told otherwise." Sorry Mr. Robot, but you cannot "assume average salaries". Where did ChatGPT get that idea??!?

And that's exactly why (D) must be eliminated, as explained by other users earlier in the thread. If, say, the average salary at the financial services company is double the average salary everywhere else, revenue will decline by more than 1 percent.

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28 Oct 2025, 05:50

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Two traps in one question:

Trap 1: Company relocates all employees => no unemployment increase in city
Trap 2: 1% employees leave => 1% revenue drop

Both sound logical. Both are wrong.

Why? Watch the solution:

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Updated on: 17 Dec 2025, 23:11

Originally posted by KarishmaB on 17 Dec 2025, 23:09.
Last edited by Bunuel on 17 Dec 2025, 23:11, edited 1 time in total.

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generis

Half of Metroburg's operating budget comes from a payroll tax of 2 percent on salaries paid to people who work in the city. Recently a financial services company, one of Metroburg's largest private-sector employers, announced that it will be relocating just outside the city. All the company's employees, amounting to 1 percent of all people now employed in Metroburg, will be employed at the new location.

From the information given, which of the following can most properly be concluded?

A. Unless other employers add a substantial number of jobs in Metroburg, the company's relocation is likely to result in a 1 percent reduction in the revenue for the city's operating budget.

B. Although the company's relocation will have a negative effect on the city's tax revenue, the company's departure will not lead to any increase in the unemployment rate among city residents.

C. One of the benefits that the company will realize from its relocation is a reduction in the taxes paid by itself and its employees.

D. Revenue from the payroll tax will decline by 1 percent if there is no increase in jobs within the city to compensate, fully or partially, for the company's departure.

E. The company's relocation will tend to increase the proportion of jobs in Metroburg that are in the public sector, unless it results in a contraction of the public-sector payroll.

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ID: 500272
CR08540.02

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Here is the video solution of this question:

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24 Jan 2026, 10:04

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For E; I understand yes it will tend to increase the proportion of jobs in the public section, but I don't understand what "unless it results in a contraction of the public sector payroll"

Can someone explain what the latter part means?

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24 Jan 2026, 10:25

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eaat Option E "The company's relocation will tend to increase the proportion of jobs in Metroburg that are in the public sector, unless it results in a contraction of the public-sector payroll." Means If the relocation doesn't results in lowering the public sector jobs, the proportion of public sectors jobs in metroborg will increase. Since in metroborg people are employed in both public and private sector. But the relocation of company is affecting the private sector job, and public sector jobs remains the same. Since the total no. Of job decreases but the proportion of public sector jobs in total jobs increases because of relocation.

Option E is presented as conditional argument and the statement with "unless" is ready as "If not". The structure of option E is basically If Not X, then Y

Not X represent not resulting in lowering of public sector jobs

And Y represent will tend to increase the proportion of public sector job.

Do let me know if you have any further queries.

eaat

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26 Jan 2026, 04:10

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eaat

"a contraction of the public-sector payroll" means if public sector contracts i.e some public sector positions are removed.
Take a simple example: Say there are 100 employees - 80 in private sector and 20 in public. So public sector payroll is 20%.
If say 10 of the private sector people move away leaving only 70, then public sector payroll is 20/90 = 22.2% (it increased).

But if moving of 10 private sector employees reduced the requirement for public sector employees and public sector reduced from 20 to 16, then public sector payroll now is 16/86 = 18.6% instead.

So the options says " The company's relocation will tend to increase the proportion of jobs in Metroburg that are in the public sector (from 20% to 22% for example), unless it results in a contraction of the public-sector payroll (in which case 20% could go to 18.6% also)."